Hidden Flaws in Strategy - 4558 Words

Hidden flaws in strategy Charles Roxburgh The McKinsey Quarterly, 2003 Number 2 After nearly 40 years, the theory of business strategy is well developed and widely disseminated. Pioneering work by academics such as Michael E. Porter and Henry Mintzberg has established a rich literature on good strategy. Most senior executives have been trained in its principles, and large corporations have their own skilled strategy departments. Yet the business world remains littered with examples of bad strategies. Why? What makes chief executives back them when so much know-how is available? Flawed analysis, excessive ambition, greed, and other corporate vices are possible causes, but this article doesnt attempt to explore all of them. Rather, it looks†¦show more content†¦Participants are asked to offer not a precise figure but rather a range in which they feel 90 percent confidenceÂâ€"for example, the Nile is between 2,000 and 10,000 miles long. Time and again, participants walk into the same trap: rather than playing safe with a wide range, they give a narrow one and miss the right answer. (I scored 0 out of 15 on such a test, which was one of the triggers of my interest in this field!) Most of us are unwilling and, in fact, unable to reveal our ignorance by specifying a very wide range. Unlike John Maynard Keynes, most of us prefer being precisely wrong rather than vaguely right. We also tend to be overconfident of our own abilities.5 This is a particular problem for strategies based on assessments of core capabilities. Almost all financial institutions, for instance, believe their brands to be of above-average value. Related to overconfidence is the problem of overoptimism. Other than professional pessimists such as financial regulators, we all tend to be optimistic, and our forecasts tend toward the rosier end of the spectrum. The twin problems of overconfidence and overoptimism can have dangerous consequences when it comes to developing strategies, as most of them are based on estimates of what may happenÂâ€"too often on unrealistically precise and overoptimistic estimates of uncertainties. One leading investment bank sensibly tested its strategy against a pessimistic scenarioÂâ€"the market conditions of 1994, when a downturn lastedShow MoreRelatedThe Hidden Flaws Within Strategy847 Words   |  4 PagesEight Hidden Flaws in Strategy This article explores human omission by identifying the eight hidden flaws within strategy that we know from behavioral economics, which explains bad strategy. Our brain is normally overconfident about our abilities. We are usually overconfident about our personal abilities. This causes problems when our strategy is rooted through assessments of personal capabilities. For example, many financial institutions believe their brands are better than average. 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